Aschenbrenner to Stop Bank Borrowing After July Drawdown

Leopold Aschenbrenner wrote to investors that he will stop using bank borrowing to finance positions at his AI-focused hedge fund, Situational Awareness, after a sharp drawdown in July. He accepted full responsibility for the losses and confirmed the fund will continue investing in public equities rather than wind down the strategy.

The decision follows a steep sell-off that highlighted weaknesses in the firm’s setup. The fund had relied on lines of credit to finance positions; removing that source of leverage will reduce the likelihood of forced, rapid asset sales during periods of market stress.

Aschenbrenner said the firm will change how it constructs portfolios and manages risk. Planned adjustments include smaller position sizes, tighter risk limits and expanded liquidity planning to lower exposure to sudden market moves and concentrated trading flows.

Trading in stocks associated with the fund’s portfolio was heavy during the July downturn. In the letter Aschenbrenner described the activity as resembling a “bank run” and accepted responsibility for the outcome.

The manager framed the revisions as operational and structural rather than strategic. Situational Awareness will remain active in public equity markets and continue its AI-focused approach while implementing changes to capital structure and trading practices.